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Operations and Materials Management

Operations and Materials Management. What We Will Discuss:. Competitive Advantage Value Chain. Overview. Competitive Advantage Requires a Focus on: Productivity Quality Innovation Customer Responsiveness. Productivity. More effective use of resources Lower inventory holding costs

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Operations and Materials Management

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  1. Operations and Materials Management

  2. What We Will Discuss: • Competitive Advantage • Value Chain

  3. Overview • Competitive Advantage Requires a Focus on: • Productivity • Quality • Innovation • Customer Responsiveness

  4. Productivity • More effective use of resources • Lower inventory holding costs • Reduced time to process customer orders

  5. Innovation • Find ways to improve product quality • Find ways to reduce production costs • Find ways to sell products at a lower cost

  6. Responsiveness to Customers • High quality customer service • Satisfying shopping experience • Good after-sales service

  7. Increase Quality • Number of customer orders correctly processed • Consistent, reliable products • Ensure supply of high quality inputs • Two types of quality and their relationship to costs • Quality of performance • Quality of conformance

  8. How?

  9. Approaches to Gain Competitive Advantage • Increasing emphasis on balancing financial side and human/creative/socially responsible side of organizational strategy • Different metrics to evaluate success than in the past • Examples: • Six Sigma • Balanced Scorecard • Blue Ocean Strategy

  10. Six Sigma • What is Six Sigma? • According to iSixSigma (www.isixsigma.com), Six Sigma is: • a measure of quality that strives for near perfection • a data-driven, quantitative approach and methodology for eliminating defects in any process: manufacturing, transactions, products, & services

  11. Six Sigma (cont’d.) • A successful Six Sigma process produces no more than 3.4 defects per million opportunities • A defect is defined as anything outside of customer specifications • Six Sigma processes are executed by Six Sigma “Green Belts” (team leaders who implement process improvement projects) & “Black Belts” (successful project leaders who are credentialed through an exam and are skilled in the use of Six Sigma methodology & tools)

  12. The Balanced Scorecard (Kaplan & Norton) • A strategic management system that drives performance and accountability throughout the organization • Balances traditional performance measures with forward-looking indicators in four “perspectives”.

  13. The Balanced Scorecard’s Four Perspectives 1. Financial perspective • Among the four perspectives, organizations generally place the greatest emphasis on financials • Financial results ultimately are the primary driver of a firm’s decisions 2. Customer perspective • Customer focus, customer satisfaction • Customers need to be happy. If customers aren’t happy, they’ll go to other suppliers 

  14. 3. Business perspective • How well the business is running • Do products, services conform to customer requirements? • Ex: downloading music - major record labels resisted change by arresting casual music downloaders vs. partnering with Napster, Amazon, etc. to create new distribution models 4. Learning and growth perspective • Employee training • Corporate cultural attitudes toward self-improvement • Knowledge environment: people are a firm’s most important resource • Metrics: You can’t improve what you can’t measure • Environment of uncertainty, ambiguity and change: workers must continually learn • Mentors • Tutors • Communication & sharing info: break out of functional silos

  15. Blue Ocean Strategy (Kim & Mauborgne) • Demand is created through innovation, not fought over • Concept of developing new, uncontested market space, rather than competing in existing markets • Ample growth that is rapid & profitable • Not based on stealing customers in existing market • Makes competition irrelevant. Ex: • Curves Fitness Centers vs. Bally’s • A Curves customer will never consider joining Bally’s • Represents a different demographic - women, older, not “skinny”. • How does Curves meet the needs of its demographic? Fitness equipment faces inward to encourage conversation & encouragement, rather than individuals facing mirrors & using iPods • Cirque de Soleil (circus for adults, not kids; expensive, Las Vegas environment, etc.) • Southwest Airlines, Virgin Airways (fun, low cost, customer gets involved) 

  16. Blue Ocean vs. Red Ocean Strategy • The Red Ocean Strategy: • Competes in an existing market • Focuses on “beating the competition” • Exploits existing demand • Aligns the firm’s activities with a strategic choice of either differentiation or low cost. • Vs… • The Blue Ocean Strategy: • Creates uncontested market space by making competition irrelevant • Creates and captures new demand • Aligns the firm’s activities with strategic choice of both differentiation and low cost • Requires constant innovation; big picture thinking; new type of strategic leaders across organization

  17. The Value Chain

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